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A&F Sustains Momentum Into Back-to-school, Gets Set for Holiday

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Abercrombie & Fitch is prepared for holiday 2021 with the right stuff.

That’s according to the retailer’s chief executive officer Fran Horowitz, who told WWD: “At this point, we have placed the appropriate buys for the business. Our buyers have done a terrific job of getting product over here,” Horowitz said when asked if the company would have enough inventory to meet the holiday demand. Global supply chain disruptions largely due to the pandemic and labor shortages have caused product shortages across the retail industry this year.

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Horowitz was interviewed just after Abercrombie & Fitch reported that its net income rose to $108.5 million, or $1.69 per share, in the quarter ended July 31, up from $5.46 million, or 9 cents per share, in the year-ago quarter. Net sales rose 24 percent to $865 million, from $698.3 million in the year-ago quarter. Sales were up 3 percent from pre-COVID-19 second-quarter 2019 net sales.

Horowitz also told WWD that the company believes holiday 2021 will likely be less promotional that recent past holiday seasons. She said “it’s true” the level of promoting thus far this year is less than 2019. “We could not be happier about taking promotions out of our business. It’s something we have been working on for years. Progress in the first half has been terrific.”

That, of course, is helping margins. “Our gross profit rate expanded dramatically, rising 450 basis points from last year and 590 basis points from the second quarter of 2019, benefiting from double-digit AUR [average unit retail price] improvement. Combined with ongoing expense management, we expanded our operating margin by 1,130 basis points year-over-year and 1,800 basis points on a two-year basis.”

Another big win for A&F was denim. “It’s exciting when we have something as substantial as the current denim trend,” Horowitz told WWD. “Skinny is still here,” while jeans with fuller legs, high-rises, flare-legged jeans and styles influenced by the ’90s are propelling jean sales, Horowitz said. “The more trendy consumer is starting to buy low rise again.” The denim business in men’s and women’s at Abercrombie, Abercrombie Kids and Hollister is strong, she said, as people replenish their closets with denim styles they don’t have and start to socialize more.

In addition to denim, which is among the company’s top three categories, dresses, shorts, T-shirts and swim were strong performers last quarter.

A&F’s rising Gilly Hicks brand opened its one and only store in mid-July in Easton, Ohio near where A&F is based. Gilly Hicks years ago operated a handful of stores that closed and under the leadership of Horowitz the line been repositioned. Asked if additional Gilly Hicks stores are planned, Horowitz replied: “The way we operate, we pride ourselves on being a test-and-learn company. There are no plans today,” to open additional Gilly Hicks units, though she added, “there will be more to come,” without specifying a timetable.

Horowitz said she sees the 2021 back-to-school season as being “extended” and as having a strong start so far.

The youth-oriented specialty retailer reported operating income of $115 million and $116 million on a reported and adjusted basis, compared to operating income of $14 million and $22 million in last year’s quarter, on a reported and adjusted basis respectively. The company said operating income was the best since 2008.

Digital net sales of $376 million decreased 3 percent as compared to last year and increased 52 percent as compared to pre-COVID-19 second-quarter digital net sales.

A&F exceeded Wall Street’s expectations for the bottom line, but fell below investors’ expectations on the top line. Consequently, A&F shares fell 10 percent, or $4.12, to $35.68 by the close of the stock market. Nevertheless, Horowitz said “we are satisfied” by the company’s sales performance. She said exceeding the pre-pandemic 2019 quarter, “That’s a big win for us, particularly in the U.S., which was 11 percent over 2019.” But she added that “things are not equal around the world. We are hoping that business starts to open up in the third quarter.”

While business in the U.S. was strong, in Europe and Asia regions, where COVID-19-related restrictions are greater, business was slower. “As our customers’ mindset shifted to summer, we continued to deliver on product, voice and experience,” Horowitz said in an earlier statement on the second-quarter results.

“Our largest market, the U.S., had healthy net sales growth of 31 percent on a one-year [basis] and 11 percent on a two-year basis. As customers returned to stores, digital net sales held steady to last year, and remained highly penetrated, representing 44 percent of total second-quarter sales,” Horowitz said.

She also said, “Reception to the Gilly Hicks brand relaunch, associated product and updated store experiences has been very positive. At our newest brand, Social Tourist, we are excited about our learnings and results since its launch just three months ago. Looking ahead, we will remain on offense and are confident that the proactive steps we have taken to evolve our operating model and cost structure, combined with evolved brand positioning, should continue to yield near- and long-term benefits.”

Sales last quarter at the Hollister division rose 20 percent to $514.5 million from $429.3 million in the year-ago period. Hollister includes the Hollister, Gilly Hicks and Social Tourist brands.

Abercrombie’s sales rose 30 percent to $350.4 million from $269.1 million in the year-ago period. Abercrombie includes the Abercrombie & Fitch and Abercrombie Kids brands.